A-la Bank of England. Seems not everyone likes gold. We have none in N.Z. so no worries eh? "Sydney, Dec. 16 (Dow Jones) - The Australian Bureau of Agricultural Resource and Economics, or Abare, is downbeat on gold's outlook in 2003, forecasting the bullion's rally to end in the year as investors move away from gold.
In a December quarterly report issued Monday, Abare said there are signs that some of the factors which boosted prices by 22% from December 2001 to November 2002 will not support gold prices in 2003.
The gold price has been rising since late last year, as an uncertain economic environment compounded by the Sept. 11 terrorist attacks boosted its safe haven appeal.
The reduction in hedging, or forward sales by producers, weaker U.S. dollar, plus the recent rise in crude oil prices and geopolitical tensions also helped the gold price rise to a three-year high of US$335.50 a troy ounce Friday.
But Abare expects that as the global economy recovers in 2003, investors will move away from defensive assets such as gold and toward other assets that could offer higher returns.
"Gold is increasingly being ignored by investors seeking a safe haven from political and economic turmoil, with increased funds being directed toward bonds, cash and property," said Abare.
Accordingly, Abare expects the gold price to average US$295/oz in 2003, down 4.5% from a projected US$309/oz in 2002.
"This weakening of the gold price is expected as the rate of reduction in producer hedging eases and as investors reduce their safe haven investment demand for gold."
In turn, the decline in producer hedging is likely to slow in 2003, as the physical market contango, or the premium for forward sales, is forecast to rise as interest rates begin to rise while gold lease rates stay low, said Abare.
Thus, the net reduction in producer hedging in 2003 is likely to be 80 metric tons, substantially lower than the 300-ton net reduction in 2002 that was a key contributor to price increases, Abare said.
On a more positive note, Abare expects the world fabrication demand for gold from the jewelry sector to recover in 2003 to total 3,650 tons from a projected 3,370 tons in 2002 as the gold price falls while economic growth improves in the key consuming countries.
As for Australia, the world's third-largest gold producer after South Africa and the U.S., Abare forecasts mine production to rise 4.5% in its fiscal 2002-03 year which began July 1 to 276 tons, from 264 tons in 2001-02.
The higher production, together with higher gold price in Australian dollars, are expected to fuel a 16%-rise in export earnings to about A$5.74 billion in 2002-03, Abare said.
